by Daniel Carter
Apple has become one of the most popular investments in the world for both retail and institutional investors. Their incredible innovations have turned them into the 9th largest company in the world. However, their innovative ability has already diminished significantly since Jobs left the company and will likely diminish even more in the future. If you are a long-term investor, don’t get your hopes up for the type of high-flying returns that we have seen in the past.
It would not be the first time a major tech company has fallen from grace. The dot com bubble burst from 2000 to 2002 was a reality check for companies that had previously climbed to the top of the industry. The market crash exposed certain companies as being oversized and innovatively stagnant. It was not necessarily the fault of anything they did or didn’t do, but rather a natural consequence of sustained and rapid growth. Eventually companies grow so large that they run out of new customers. Large companies are also slower innovators than small companies because it takes longer for an idea to spread through the chain of command to become actionable.
Microsoft, Oracle and IBM — all once at the top of the mountain — have all had underwhelming returns since the dot com bubble popped. Now, their innovative, high-flying growth days seem to be long gone and maybe lost forever. These stocks are now barely above where they were 17 years ago.
Fortunately for Apple, their stock price easily shrugged off the market crash because their most innovate breakthrough (iPhone) came well after the fallout. However, there is already a noticeable slowdown in Apple’s growth due to a lack of innovation.
Many people, including myself, believe that Steve Jobs was the main force behind Apple’s outstanding innovation. Jobs was the face of the nimble and innovative Apple while Tim Cook is the face of the oversized and stagnant Apple. This is not necessarily the fault of Tim Cook. The previous success of Jobs eventually turned Apple into the behemoth it is today.
If we compare Jobs’ Apple to Cook’s Apple, we see a massive disparity in average annual returns, with Jobs averaging about 700% per year and Cook averaging about 30% per year. Thirty percent annually is an impressive return that handily beats the overall market, but 700% annually is a once in a lifetime investment opportunity. Unfortunately, Apple’s days as a once in a lifetime investment are gone and likely never returning.
We are currently in one of the largest bull markets in recorded history in terms of both return and time length. Apple is currently near all-time highs because of the great overall market conditions. A major market correction in the near future could destroy Apple’s long-term returns. Just think of all the major tech companies that have barely recovered from the dot com bubble.
The next market crash could push Apple down to levels that would take years to recover from. Microsoft, Oracle, IBM and many other great tech companies have gone down this road in the past. Apple’s gargantuan size and fleeting innovative ability will likely cause it to suffer the same fate. I believe Apple will still be a good investment in the future, but not nearly as successful as it has been in the past. Keep looking for that next exceptional tech company to invest in because Apple is no longer that.
by Daniel Carter